We continue to see the extreme inequity of executives and professionals continuing to receive raises, for many twice the 2 % inflation rate versus workers. The reality is that employees just do not have the same wage power that they used to. We have previously discussed the combination of factors that contribute to extreme lack of wage power for workers including: lack of union representation, automation, fewer corporations due to mergers reducing the number of jobs, low wage H1-B visas being approved, using profits for stocky buybacks instead of investment in productivity increases, Internet recruiting nationwide and worldwide for some positions, and the shift to outsourcing jobs and the gig economy.

We recommend the following actions be taken by Congress and Corporate Leaders:

Place Workers on Boards– as Germany has so effectively setup, engaging management with required representation of workers on Boards.

End Outsourcing– corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.

End Low Cost H1-B Visas– the practice of importing inexpensive labor to drive down wages in US markets would be ended.

Offer Lower Taxes on Repatriated Funds– only if the profits from overseas are invested in productivity actions, increasing wages of workers (not executives), reducing costs or innovation. Stock buybacks or dividends would be prohibited.

End Stock buybacks– these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases.

Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication.

Balance Worker and Executive Pay– tax corporations 25 % surcharge on any corporate income where any executive makes greater than 150 % than any the average worker wage – this would force executives to share their income with workers while not increasing costs. End federal tax deductions on corporate income taxes for executive stock compensation above $1 million. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives 10x of monthly salary a worker would receive 10x of his/her monthly salary.

Fund Worker Training and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.

As more corporations use software to track hourly employee hours some have tipped the data collection rules in their favor. American Airlines is facing a suit from 400 employees for shorting their hours, Kroger and Montage are facing similar suits. We realize that corporations are under great pressure to cut costs on labor to increase profits and meet shareholder and Wall Street expectations. However, since the wages of production employees and non-supervisors have been essentially stagnant for the past 5 years we ask: who is really getting hurt? Corporations have all time low taxes, all time high stock buy backs to juice executive salaries, and all time cash nearly $1 trillion stashed in most offshore accounts.

Meantime employees are at the lowest point of wage power in the workplace in decades with reduced health benefits at greater cost, competition for their jobs from other workers on the Internet, automation, corporate mergers reducing the number of jobs available, and union busting laws. So who are the wage scales tipped toward? Corporations. Average hour worker income has continued to fall when inflation is included.

Sources: Bureau of Labor Statistics, Real Investment Advice – 5/15/18

So, when companies use software to track employee hours, then ‘round hours up’ for breaks or deduct breaks that didn’t happen – like for nurses in healthcare at the University of Missouri Health Care using time tracking software where they cared for patients during their breaks but the software recorded a break anyway. The nurses are losing money, and even more than just wages respect for the work they do.

Next Steps:

Employers wake up! Work is a social contract that is two-way and should be equitable, time cards should be signed by employees in some manner before wages are dispersed. The signing which used to be performed is a confirmation that the employee and employer understand the work being performed and the fair hours completed. Software should not just automatically capture data and cut checks. When time cards were used, filled out by employees – now done online, yet most systems allowed for electronic signatures. In haste, these companies are just using the software to capture the hours, record the hours and post checks. Company IT departments set the rules of the software sometimes in favor the company not the employee. These rules changes can be for just minutes or more but at infrequent times so it is hard for employees to discern what is happening to their paycheck. Time tracking software should be required to show an audit trail for the employee to see to ensure that it is a just capture of their hours. Let’s be clear when these systems don’t treat employees fairly, and allow for confirmation of hours worked the employer is committing a real in justice to the employee. Corporations need to review the process of their time recording software for hour employees, ensure adequate safeguards are in place for employee input and install these systems with employee support.

(Editor Note: The following blog is the result of a completed in depth research project into multi-dimensional problems facing our Heartland and we developed an innovative renewing sustainable solution. References are in the Research tab under this blog name, please right click on the charts to see them larger in a separate browser tab.)

The View:

Rural and inland regions in the Heartland have been left out of the robust growth centered mainly in coastal regions. The Heartland of America has been falling behind in education, entrepreneurship, health, housing, mobility digital infrastructure for the past 20 years. The rebuilding of these key regions is a multi-dimensional problem requiring a major investment similar in scale to the Marshall Plan after WWII. Yet with a different funding approach – building a startup non-government organization. We are recommending a difference approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center. An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.

The Story:

The Heartland of America been spiraling downward in terms of education, entrepreneurship, health, housing, mobility, digital infrastructure and jobs for over 20 years. All of these factors combine to create sub-nation apart from coastal and metro prosperity. Jobs programs in rural areas will not be enough to bring these regions to a tipping point in socio-economic growth. Other factors create huge challenges: the opioid epidemic has hard hit heartland communities where for example. some Ohio machine shop employers find 50 % of their job applicants for machinist jobs test positive for drugs. The Heartland is where: (1) mobility to take new jobs is the lowest in rural and small cities in the Midwest and South (2) there is the highest concentration of young people without a 4-year degree (3) the lowest concentration of entrepreneurs is holding back business formation and development to create new higher paying jobs with a future (4) the largest number of people without health insurance are found in the South and rural areas of the Southwest and West (5) slow speed Internet connections are the norm leaving many heartland regions way behind in the digital revolution where new jobs, opportunities for education and quality health are being developed and accessed (6) accounting for births, deaths and migration rural population has declined for five consecutive years. It is deplorable that a complete socio-economic region of the country has so many factors that have not been addressed to extent necessary to transform people’s lives toward good health and fair share of prosperity.

Rural and small town America enjoyed a renaissance of increasing jobs and prosperity into the mid 1990s. During this time rural counties were home to more than one-third of all net new businesses establishments fueling the job creation engine. Yet, in the past ten years the economic conditions have changed dramatically, leaving these regions out of robust growth in coastal areas since the Great Recession.

Employment

Rural or Non Metro areas have not regained the same level of employment as pre-2008 recession levels:

Non Metro areas lost more jobs as a percentage of the labor force than Metro areas did during the recession and has not caught up. Non Metro employment was estimated to be 20.684M jobs in the 1st quarter of 2007 versus the 2nd quarter of 2016 with 20.091M jobs a 2.9% reduction or a loss of almost 600k jobs. While Metro areas during the same period exceeded recession employment levels by 4.8%. At least 50 % of the Non Metro deficit relative to Metro areas was due to zero population growth between 2010 and 2013. This factor was partially offset by an increase in hiring in the oil and gas industry when gas prices were high and fracking exploration was exploding in Midwest oil fields.

The distribution of industry sectors hurt Non Metro employment as the number of manufacturing jobs fell 20 % from 2001 to 2015. Non Metro areas were severely impacted as they had nearly twice the number of manufacturing jobs as a percentage of total employment versus Metro areas.

Non Metro areas exceed Metro employment in sectors like Farming and Mining, Forestry and Fishing, Construction is about even with Trade, Transportation and Utilities is comparable. Yet, in Services, the fastest growing sector of the economy, Metro areas have a 16 % employment advantage over Non Metro areas.

Manufacturing companies concentrated in rural counties and near metro areas have increased employment by about 5 % in the last 6 years. However, due to automation far fewer workers are needed to increase output up to 20 %:

The ability of companies to dramatically increase output with fewer workers translates into fewer job opportunities for factory workers many without college degrees needed for knowledge management based work.

Other factors need to be addressed – like ensuring that workers even when trained are not in such despair that they are taking drugs. Or when on the job, their illnesses can be dealt with quickly and return to work immediately.

Health

Rural health providers face a daunting set of challenges in providing healthcare to a declining population, with high unemployment rates, reduced insurance coverage and limited access to broadband Internet for treatment information and patient records.

Unfortunately, many Non Metro regions have limited or no insurance coverage, some have decided not to accept Medicaid help from the federal government – ie Texas. These no-coverage policies for many of the working class and poor mean that their health care is drastically reduced as shown in the charts above.

Sources: The Kaiser Family Foundation – 2016

The Affordable Care Act or Obamacare helped to reduce the total number of uninsured people from about 14 % total to about 9.2 %. However, as noted in the chart below for insurance plans under the ACA for 2018 many areas in the South and Southwest, and rural western states have only one insurer or some have none.

Source: Robert Wood Johnson Foundation – 6/6/2017

One major issue for health care providers and business leaders interested in bringing in new businesses is high speed Internet access and the lack of a digital infrastructure.

Internet

University of Texas researchers found in a study of rural communications in Oklahoma, Texas and Mississippi that rural household incomes went up and unemployment rates dropped in rural counties where broad band internet was installed.

The number of rural households connected to the Internet is directly proportional to Internet speed. As this graph shows Internet subscriptions per 1000 households by county where metro areas like St. Louis dense household connectivity vs a rural town like Caledonia, MO.

Sources: FCC, Broadband Now, The Wall Street Journal – 6/15/17

The FCC defines fast speed Internet as 25 Mbps about 39 % rural households in the US or 23 million people lack access to broadband Internet service. Only 4 % of of urban – metro households do not have high speed access.

A major challenge is that a city like St. Louis has 5,000 people per square mile compared to rural counties like Washington where Caledonia is located with 33 per square mile. Installation of fiber optic trunk lines cost about $30,000 per mile including access rights – so population density is crucial to meet financial targets for providers.

Broadband Internet access is like electricity was in the past – in 1935 only 10 % of rural America had electricity. President Franklin D. Roosevelt drove an initiative to connect every rural household to electric power and two decades later 90 % of all rural households have electricity.

Entrepreneurship

Rural communities once thrived in starting new businesses, however today the percentage of startups in rural areas has dropped from 20 % in the 1980s to 12.2 % in the 2010s.

Source: The Kaufmann Foundation – 2016

There are gaps between the largely white young entrepreneur often thought of in starting a Silicon Valley startup compared to a minority entrepreneur. Experts estimate that if minorities started and owned businesses at the same rate as whites that there would be over 1 million more new businesses creating an extra 9.5 million jobs.

Education impacts the propensity of young people to start businesses. Rural areas have a lower percentage of college graduates than metro areas. Adults without a college degree make up 11.6 % of the population but only 3.4 % of entrepreneurs.

Mobility

Americans have been always willing to move to ‘greener pastures’ for a new career or business opportunity, as evidenced in the Dust Bowl days of the 1930s and the migration to California, or the movement of southern African-Americans to northern states like Michigan for jobs in auto manufacturing after WWII.

Yet today that attitude and confidence is fast draining away, into a sense of not ‘fitting in’ for rural community members moving to a metro area or even small cities surrounding metro areas.

Mobility is at its lowest level on record since records were first kept after WWII, dropping by 50 % since a peak in 1985. After WWII about 20 % of Americans reported moving in the last year, that figure has now fallen to 12 %, a 40 % decline.

Source: Census Bureau, The Wall Street Journal – 8/2/17

There are three aspects related to reluctance to move: culture, housing, and education. On a cultural basis in many rural regions people are devout in their religion who don’t feel when they talk with ‘coastal people’ they are not appreciated, understood and end up being ridiculed for their values. In housing, over the last 8 years since the recession in metro areas restrictive zoning laws have reduced the availability of housing driving prices way up. Yet in rural areas housing prices are just now getting even with pre-recession levels. For a school custodian in a rural area, without a college degree a job in a metro area may pay 50 % more but housing could be 3 or 4 times more expensive. For those with college degrees, in a profession like an attorney can move from a rural area and handle the increase in housing costs due to a much higher salary ratio to housing costs, based on recent research. Finally, lack of education prevents young adults from taking jobs in higher paying metro areas where the knowledge economy requires a 4-year degree and in many cases an advanced degree.

Another issue is the possible ‘brain drain’ of losing young people to larger cities and where they stay. The small town loses the talents and innovation of its bright ambitious younger people. Investments in Non Metro areas need to offer both incentives for movement across county lines but opportunities that are created locally to build the local economy.

Education

Rural areas have endured lower education rates than urban areas. For example, rural areas achieved a higher rate of bachelor’s degrees from 2000 to 2015 but they still are 73 % lower than the bachelor’s degree rates of urban areas. Rural residents often have to travel further for college studies and of those schools serving these areas they have experienced continuous cutbacks due to regional economic downturns.

Sources: USDA, Census Bureau – 2016

There is a direct relationship between education attainment and earnings – yet here again rural residents are earning much less than urban residents by 25 % for bachelor’s degrees.

Sources USDA – Economic Research Service, Census Bureau – 2016

While rural job holders with 4 year degrees experienced higher demand for their skills they were still behind urban residents – largely due to lack of local employment prospects.

While there is a high rate of poor attainment of high school diplomas in inner cities, the problem is larger in rural areas. Of adults without a high school diploma 4 out of 5 are in located in rural areas.

Sources: USDA – Economic Research Service, Census Bureau – 2014

Rural areas hardest hit by unemployment are also those with the highest percentage of non-high school graduates in the South, East Central mountains and along the Mexican border.

The Solution:

The Rural Socio – Economic Crisis – Calls for Major Investment Now!

There is a major reason for the civil conflict we see today across America – it is the hallowing out of America’s heartland. Rural areas have been hardest by globalization, automation, fewer new business formations, lack of education opportunities, poor digital infrastructure, inadequate or non-existent health services and economic loss since the Great Recession leading to limited mobility to obtain better jobs or education.

A dedicated non-government organization (NGO) for centralizing multi-dimensional development in the heartland needs to be created, a Heartland Development Center (HDC). An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The federal government would provide ‘seed’ funding with major funding from state, local and city government and major corporations who would benefit from the new available job force. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, or preventive health – Cleveland Clinic as contractors to the HDC. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down.

Training and Employment

To plug the skills gap in rural areas initiatives like the Opportunity@Work program are one solution. The training group started in the Obama White House focuses on providing Internet economy job training to workers in the heartland to gain digital skills for jobs in fields like programming and information technology.

Designing, developing and deploying focused apprenticeship programs for the Heartland is crucial to building a robust regional economy. Colorado has invested in its CareerWise to bring businesses, colleges and vocational training groups into partnerships providing all Colorado high school juniors and seniors with a dual career path leading to a community college associates degree plus key skills. Students can begin working on the factory floor as juniors learning key company job skills, and are guaranteed full time employment at the end of their apprenticeship along with financial support to earn a community college degree. This type of program provides a good template on how to implement a Heartland program.

However, an HDC goal to create over 1 million jobs in rural communities within 5 years will require significant investments by major corporations, foundations, Federal, State and Local government and universities to turn the present situation around.

In manufacturing, partnering with the ARM Institute (Advanced Robotics in Manufacturing Institute) is an alternative where ARM focuses on developing robotic solutions with partner companies and developing worker skills in robotics. Automation is growing fast in manufacturing, so US workers need to learn robotics management, support, and collaborative work to be competitive in the world manufacturing marketplace.

Major high technology companies like Apple, Amazon, Facebook have business development departments planning today where they will be locating manufacturing sites, customer support centers and other services. HDC leaders need to be developing relationships with fast growing companies to understand their business needs and ensure they are developing the local economies, infrastructure and workforce these companies need.

Entrepreneurship

The majority of new jobs come from new businesses, yet new business formations in Non – Metro areas are half of the rate in Metro areas. Contracting with experts like the Y-Incubator in Mountain View, who has invested in over 1450 companies with a combined market capitalization of over $80b capitalization. They provide programs for non-profits and profit making organizations and a network of consultants on business fundamentals in legal, logistics, manufacturing, services, finance, and marketing to help startups.

The Kaufmann Foundation provides resources for entrepreneurs to learn business formation skills and development. They setup entrepreneur and investor networks and complete research on the needs of entrepreneurs and the status of entrepreneurship in the US.

Digital Infrastructure

Similar to the Rural Electrification project of the 1930s, the heartland needs to have its digital infrastructure upgraded to full broadband Internet service of at least 25 Mbps and ideally up to 100 Mbps to all households. Google has been setting up mega bandwidth sites in areas like Utah and the SF Bay Area, possibly a program could be setup with them to target rural communities across the country. In Rural Electrification, the federal government lent funds to local cooperatives of local merchants or farms could be setup as an alternative in areas where local telecom cooperatives have already been established. A possible successful model is in central Missouri, where The Co-Mo Electric Cooperative, Inc. installed a fiber optic network to over 25,000 subscribers. The service has reached out to another 15,000 subscribers who are non-members in neighboring communities. Co-Mo funded their program with a $100 from each member upfront with 100 Mbps service costing $49.95 per subscriber per month. The FCC needs to ensure that all providers not just phone companies can participate and offer Internet access.

Healthcare

Rural regions have some of the highest rates of drug overdose, obesity and cancer and other diseases in the country. To support the economic development and job training programs to lift the region, healthcare services need to be upgraded and offered at reasonable rates to people. The Cleveland Clinic has a start-of-the-art illness prevention and wellness program they have implemented for their own employees that has saved them tens of millions of dollars per year. Contracting with leaders like the Cleveland Clinic to setup innovative health services programs partnering with local providers would be a way to jumpstart the upgrade process for health services in these regions.

Local Feedback, Communication to HDCs

One aspect of a major development program like the Heartland Development Center project is to keep renewing itself and gain continuous feedback on how effective its programs are with its clients – the people in the region. A non-profit, Spaceship Media, in cooperation with the Bay Area News Group and other media groups has deployed on the Internet ‘conversation experiences’ with local people over Facebook and other social media to connect people with each other to discuss issues and possible solutions. Similar groups can be implemented by HDCs as focus groups to ensure they are receiving continuous feedback to tune their programs or make major changes as needed. Teamed up with incubators, local business groups and universities a continuous innovation process can be implemented to constantly support HDCs to reinvent themselves and stay on track in meeting the needs of local people.

(Editor Note: This is the first in a series of posts on the state of the job market, and the changing balance of power between workers and management in the Internet Economy, right click on all charts to enlarge in a separate tab)

The View:

When management gains the upper hand and establishes sustained wage power, old economic theories collapse – like the idea that a low unemployment rate meant more wage bargaining power for workers but not anymore. For example, at the time of hire, wages are a negotiation between management and the candidate for a job. The employer has options if the candidate does not accept the offer to seek a variety of candidates from the Internet. After hiring, the employee enjoyed increased power due to his/her performance and value to other employers. However, assuming job performance is sustained now a variety of factors outside job performance are holding wages down. In the Internet Economy, workers face a daunting set of factors reducing their bargaining power – diminished bargaining units (unions decline), automation, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, increased executive pay and corporate control of job markets. The Action: political forces are gathering to increase worker bargaining power with initiatives like these: placing workers on corporate boards, limit outsourcing, eliminate low wage H-1B visas, offer incentives for corporations to invest in productivity improvements, end stock buybacks, breakup oligopolies, balance the job market process, balance workers and executive pay, fund worker training and increase wages related to robot deployment.

The Story:

This author was hiring a support manager for a customer support community of 5,000 users a few years ago. It was a senior position, it took three months of 3 round interviews, background checks, management review and signoffs to create a candidate job offer. The candidate came back with a counter offer (not unusual in Silicon Valley) of 4 % more and a little more in stock options. I asked my manager how far we could go to meet his counter, the executive’s reply, “We don’t make counter offers, everyone wants to work for us, you have 400 resumes from the Internet on this job, 100 are qualified, just go back to one of them.” This candidate did not have much bargaining power in the job market few years ago and with increasing job market automation candidates have even less bargaining power today.

The Bureau of Labor Statistics for last March charts wages versus inflation illustrating how workers experience stagnating wages for 8 years since the great recession – they aren’t getting ahead with wages barely keeping up with inflation recently. In June this year, total compensation including bonuses and commissions has stayed under 2.5%, note prior to the recession it was close to 3.5 % :

So, how have workers lost their wage bargaining power over the past thirty years?

Unions

Fifty years ago 33 % of all US workers were members of a union, by 2015 membership had declined to just 10 % – a greater than 66 % decline. The decline was quite pronounced in ‘right to work’ states in many in inland regions and the South:

Source: NPR 2/23/2015

Manufacturing jobs were heavily unionized, yet declined due to automation and productivity increases primarily in electronics and automotive industries where many factories were moved overseas. Almost 5 million manufacturing jobs have disappeared since 2000, yet over the past few years factories have been coming back to the US by increasing employment by 5 %, but with far fewer workers and the US taking the No. 2 position in worldwide manufacturing output with a 20 % increase in output:

Thus, while union membership has declined mostly due to the reduction of manufacturing jobs in the US, automation has been a key factor weakening the worker wage bargaining position. A recent Ball State University study found that over 88 % of lost manufacturing jobs were due to automation and productivity increases not offshoring.

Automation started decades ago, as IT applications deployed in offices and manufacturing plants in the 1970s and 80s displaced thousands of workers performing repetitive manual tasks such as data gathering and reporting, answering phone calls, editing and copying documents, sending and receiving status reports, manufacturing reporting and others that were easily automated by software. By 1995, the Internet began to impact the workplace, networking software applications so that jobs once requiring local support or data could be performed overseas for far less. In Silicon Valley, an entry level software engineer would be paid $65 – 75 @hr., while an engineer in India was paid $20 @hr. or less. Thus, most business processes for ‘non-core’ functions like accounting, IT, customer support and benefits processing were moved offshore to reduce costs by 50 – 75 %.

In addition, major corporations have been outsourcing non-core services to US contracting companies to the detriment of worker’s pay security or benefits. For example, in Silicon Valley starting in the 1980s until present – many core IT functions were outsourced with ‘facilities management’ agreements, where IT workers are fired, and rehired by outsourcing companies at 30 – 40 % less in salary with no benefits or health insurance. The workers were faced with no good choice – look for another job or take a pay and benefits cut for the job they had before. In the Bay Area, H1-B visas are often used to keep wages low by offering a worker from India 40 % of the local prevailing wage for a software engineer.

Automation investments continue as software firms develop applications that automate many business activities previously thought to be difficult to automate:

Source: McKinsey Global Institute – 2/28/2017

Jobs requiring skills from sensory perception fine motor activity or navigation are going to be automated over the next 30 – 50 years. All this investment in automation results in less competition for employers to find employees to do the work they need – a machine will do it. The machine shows up on time, requires no vacation, is not absent, and does not sue the company for management miscues.

Corporate Oligopoly

Another way corporations limit worker job options is by merging with other companies and then laying off workers in the newly combined firm. Since 1997 the average market share for the top four firms in most of 893 industry sectors has increased from 26 % to 34 %. For a tenth of these sectors where the top four firms have 33 % to 66 % market share their revenues have increased by 37 %!

Source: Census Bureau, The Economist – 3/2016

The antitrust section of the Department of Justice has been asleep the past two decades. In the airline industry, there are now 4 airlines that own 80 % of the business. In finance, just 5 banks have 50 % of $15 trillion in total assets. In the information search sector – the top 4 companies have 98.5 % of the search industry market. The wireless communications industry is dominated by the top 4 companies control 94.7 % of the market between them – Verizon, AT &T, Sprint and T-Mobile. In the tire manufacturing sector, the 4 top firms dominate the US market with a total market share of 90.1 %. In 2012, entertainment, media and distribution markets were concentrated in 6 conglomerates with a total of 90 % market share. In 1983, 90 % of entertainment and related markets was distributed over 50 corporations:

Source: mediaculturesociety.org – 1/30/2013

The advertising industry is consolidated into a two Internet behemoths – Google (Alphabet) has nearly 50 % market share and Facebook with 16 %:

From 1997 to 2017, the number of publicly listed corporations has declined by 50 % overall. Fewer corporations for job candidates translates into fewer corporations offering good paying jobs with high quality benefits. Plus, an analysis of corporate concentration in the five year period of 2007 to 2012 in the services sector, found that where corporations control markets and reduce the number of workers to support sales wages decline.

These markets have been turned into oligarchy power centers, where many executives wield huge market and political power – with no interest in increasing wages of employees. Instead, they are motivated to focus on increasing profits (increasing wages would hurt short term profits) by bonus compensation and stock price targets (inducing them to execute stock buybacks).

Gig Economy

The ‘gig economy’ of freelancing and independent contractors has ballooned to about one-third of our workforce or 56 million workers in 2016 according to the McKinsey Global Institute. The growth of ‘shared economy’ companies like Uber, Lyft, Airbnb, Rideshare and many others have provided these gig workers new flexible income opportunities without the financial safety net of traditional employer jobs. Gig economy workers often have limited or no access to worker’s compensation, unemployment insurance, 401K retirement plans, disability insurance or health insurance. Independent workers are required to pay both the worker and company portion of Social Security taxes and worker portion of Medicare each year on their income. In the Gig Economy, 33 % of the workforce is not organized into a union or any bargaining unit. These contract workers they are at the mercy of corporations or businesses that set the terms of a work contract, and if there is a problem they quickly find another contractor with no obligation to the contract worker. Uber, and Lyft dominate the ride sharing market, pushing out taxi cab firms, car companies and shuttle businesses – many with full time employees including benefits. While the cost of rides maybe going down for the passenger, workers are seeing their wages held steady or reduced (Uber reduced driver share of fares by 20 % a year ago) with no compensation for gas costs, auto depreciation and or financial protections. Financial protection for gig economy workers is in the infant stage, where companies are holding off any meaningful changes until class action suits are brought against them.

Productivity

Major corporations have parked over $1 trillion in profits overseas, invested in financial instruments. In 2017, Goldman Sachs estimates S & P 500 corporations will spend over $780 billion in stock buybacks. None of these funds are being invested in the corporation, and its workers to develop new technology, processes or systems to increase productivity or cut costs.

When productivity is anemic, offering wage increases to workers cuts into profits. Executives are compensated well based on hitting profit targets, so wage increases are not going to happen other than low inflation level 1 – 2 % increases. Over the past five years productivity has dropped from 7.5 % to 2.6 % this past year. Interestingly, 2.6 % is the level of wages we see today, stuck at this level for the past three years.

Source: The Wall Street Journal, The Daily Shot – 3/9/17

Most of our economy is services based, and productivity improvements in the services sector have been slow in coming compared to the goods based sector. For example in social assistance, education, and healthcare there has actually been a reduction in productivity by up to 9% since the 1980s. Plus, hiring has centered on our services sectors so productivity increases are likely to be limited.

Today, executive compensation at S & P 500 corporations is on average 300 times the average pay of their workers! Senior management enjoys a combination of high salaries, benefits (executive healthcare), house low cost loans, stock options and bonuses for achieving earnings targets. For 2016, CEO average pay increased by 6.8% year/year to a record $11.5 million since the 2008 recession while production worker pay has stagnated at a 2.5 % wage increase.

Note the ratio of CEO to Worker pay soars in the 1990s with the de-regulation and trickle-down economics of the GOP administration. Extreme executive compensation is taking wages from workers who would otherwise receive their fair share wage. Corporations have committed over $780 billion, according to Goldman Sachs to stock buybacks for 2017 which only go to increase their stock compensation plans and shareholder assets. Those billions of dollars could be better allocated to increasing worker wages.

Worker Pay

One aspect of worker pay that has increased by 12 % since 2006 is total worker compensation in the form of benefits. While wages have increased by just 4 % in the same period. Paid leave, health and other benefits have grown faster than wages, except in a few months. Wages as a percentage of total compensation have dropped from 70 % in 2006 to 68.3 %.

Sources: Labor Department, The Wall Street Journal – 6/9/17

The health component is somewhat misleading, while corporations have seen increased costs for medical coverage, they have reduced those costs by moving the the majority of cost increases over to employees. Corporations have done this by increasing the deductibles covered, reducing the number of plans and increasing premiums. Worker households are caught in a cash squeeze by having to pay more for the health care coverage they had previously while corporations are holding their costs in line with inflation or slightly more.

Federal minimum wage laws are not keeping up even with inflation. Some states are making up the difference, by requiring higher minimum wages than the federal minimum wage (green). Other states offer the same minimum wage (blue) and yet in the South many states don’t have any (yellow) wage minimum laws with others (red) below federal minimum wage rates like Minnesota, Arkansas, Georgia and Wyoming. Note many foreign car manufacturers have deployed plants in no wage minimum states like Tennessee, Alabama and South Carolina.

Source: Department of Labor – 1/1/2014

Job Market Automation

LinkedIn was designed for corporate recruiters with the features and services they wanted to speed the recruiting process. The edge to recruiters is obvious in the design of the service. For example job seekers cannot have multiple resumes or experience sets styled toward different jobs. Unless the candidate – user is adept at settings updates to profiles are immediately sent out to all people in their network. Recruiters have dashboards with filtered candidate lists around search preferences and locations. The majority of LinkedIn’s revenue is from the corporate recruiting market – candidates are promoted to meet the needs of recruiters. The use of LinkedIn, Monster, Indeed and other Internet job search services create and sustain a powerful recruiting edge for corporations. Businesses can identify hundreds of high quality resumes and candidates quickly from all over the world in just a few hours or less. Resume scanning programs further refine the candidate list, filtering content by keywords, phrases or other text targets.

HR departments often hide behind Internet screens, offer no phone contact numbers and provide few ways for candidates to follow up with key staff. Without an inside contact, a candidate is left to be a cog in the corporate recruiting machine.

So, workers are faced with a daunting set of economic forces holding their wages down – diminished bargaining units, juggernaut of automation, fewer jobs at merged corporations, temporary jobs in the gig economy, reduced productivity, exorbitant executive pay and corporate control of job markets.

Yet, political forces are emerging to effect changes in the relationship between workers and management that we may expect to see over the next few years. Progressives, worker rights groups and reformers in the US heartland hard hit by the economy are looking to make dramatic changes in the balance between workers and executives.

The Action:

Place Workers on Boards – as Germany has so effectively setup, engaging management with required representation of workers on Boards.

End Outsourcing – corporations would pay 50 % tax on each job moved overseas making the move costly, encouraging corporations to move jobs to low cost or inland areas of the US, or innovation economic zones (special tax geographies) and to invest in worker training to receive training tax credits.

End Low Cost H1-B Visas – the practice of importing inexpensive labor to drive down wages in US markets would be ended.

Offer Lower Taxes on Repatriated Funds – only if the profits from overseas are invested in productivity actions, increasing wages of workers (not executives), reducing costs or innovation. Stock buybacks or dividends would be prohibited.

End Stock buybacks – these funds are totally wasted, mislead investors on earnings reports and only serve to increase compensation for executives and shareholders. These funds are better allocated to increase worker wages or increase productivity so workers can receive higher wage increases.

Balance Job Market Process– require companies over 100 employees to offer information on their website for contacts, phone numbers, job listings with identified contacts, and to let the candidate know the status of his consideration, and candidate introductions held monthly for F2F communication.

Balance Worker and Executive Pay– tax corporations 25 % surcharge on any corporate income where any executive makes greater than 150 % than any the average worker wage – this would force executives to share their income with workers while not increasing costs. End federal tax deductions on corporate income taxes for executive stock compensation above $1 million. End golden parachute packages by taxing 50 % of every dollar received above $1 million. Severance packages for workers would have to be in proportion to the highest executive package ie, executive receives 10x of monthly salary a worker would receive 10x of his/her monthly salary.

Fund Worker Training and Increase Wages – for each robot employed, the corporation would be required to offer training, skills development for the displaced worker to find a comparable job within the company or outside. Where automation software or technology is deployed 10 % of the realized cost benefit would be used to raise the wages of all workers in the company.